Minimum wage hikes deliver maximum pain to the poor

Low-income families have the most to lose in the game of political poker that is being played this year by Democrats in Washington, D.C.

In his State of the Union address, President Barack Obama proposed to gradually raise the federal minimum wage from $7.25 to $9 per hour – with automatic increases thereafter tied to inflation. Given the preponderance of evidence that government-imposed wages either destroy low-income jobs or raise prices paid by poor families, it was a nakedly cynical ploy designed to show that Democrats care about the poor, and to cast Republicans who conscientiously object to destructive economic tinkering as beholden to big business.

Raising the president’s ante Tuesday were Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Martinez, who introduced a bill that would lift the minimum wage to $10.10 per hour and increase it with inflation. Why didn’t they pick $20 an hour? They didn’t say, but it could be because progressive economist Paul Krugman, writing in support of the president’s plan, said that a $20 minimum would “create a lot of problems.”

Those “problems” include widespread pain for the breadwinners Democrats claim to defend. Direct aid to low-income families, such as food stamps and the Earned Income Tax Credit, is far more effective.

As UC San Diego economist James Hamilton noted recently in the U-T, half of the people earning the federal minimum wage are teenagers or young people in their first jobs. Many of them receive support from their middle-class parents.

Economists since Adam Smith have found that a jump in wages forces employers to fire workers and make the rest more productive, because market forces generally limit employers’ ability to raise prices.

Democrats who sincerely hope that government wage mandates actually help workers point to a 1992 study by UC Berkeley economist David Card and Princeton economist Alan Krueger, who is now the chairman of Obama’s White House Council of Economic Advisers.

The economists found no evidence of job losses at fast-food restaurants after New Jersey raised its minimum wage, compared to neighboring Pennsylvania, which did nothing. Instead of firing workers, New Jersey restaurants simply raised meal prices – thus hurting all poor families.

Sadly, rising state minimums since have provided plenty of evidence that minimum wages do kill jobs, particularly in sectors that compete globally, such as the Los Angeles garment industry.

As Hamilton points out, eight of the nine states – including California – with minimum wages at $8 an hour or higher have significantly higher unemployment than the national average.

Since 1914, when Henry Ford cut turnover by doubling his minimum wage to an unheard-of $5 a day and reducing the standard work day to eight hours, employers have demonstrated a willingness to raise pay when the market demands it. As with most government interventions, Obama’s intrusion into the worker-employer relationship will only hurt both.